Question

Suppose the Federal Reserve increases the bank's reserves through an open-market operation by a total of $100 billion. This leads to an increase in M1 of $1 trillion. What is the reserve ratio of U.S. banks?

Answer 1

Money supply increase to $1 trillion

Reserves/Reserve Ratio = Money Supply

$100 billion/Reserve Ratio = $1 trillion

Therefore Reserve ratio = 0.1

0.1 or 10% is the answer for this question